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Converting a prospect to a client is one thing and it’s not an accomplishment to be diminished. Astute, introspective advisors constantly evaluate their prospect-to-conversion process to understand what worked and what didn’t, tinkering with it over time to improve it.
Good things to be sure. However, there’s something else worth understanding: what makes a client stick around. After all, getting some handle on that can help with the important mission of client retention. Obviously, portfolio performance goes a long way toward keeping a client around for the long-term, but it’s not the only factor.
In reality, investment management acumen, or lack thereof, isn’t the biggest reason clients reduce or eliminate relationships with an advisor. Actually, various research and studies suggest performance-driven factors and returns are surprisingly low on the list of reasons why clients fire advisors. Some studies indicate it’s roughly one in 10 clients that fire advisors did so solely due to portfolio performance.
That’s not an indication that all clients are “high maintenance.” Some are, but many are not. What that one in 10 data point signals is that there more goes into why clients see value in their advisors than just investment returns and it pays for advisors to understand what the more is.
Four Big Things Clients Care About
A recent Morningstar report synthesized four studies on advisor/client relationships, unearthing four primary reasons clients stick around. Those are consistent advice, achievement of financial goals, “keeps me on track”, and maximization of returns.
Looking at consistency of advice, a lot that boils down to something advisors already know: one-size-fits-all doesn’t work in the advisory business. It probably never has, but if it ever worked, it’s certainly past its sell-by date, particularly with today’s increasingly discerning clients. They want customization and that tailoring is value in their eyes. Clarity on establishing and reaching goals is also critical.
“Clients in all four studies also valued advisors who can help them articulate their goals as well as support them along the way to finally achieve these goals,” notes Morningstar’s Danielle Labotka. “People tend to invest for a reason (not just to have more money but to have the money they need to live out their dreams), so advisors who can help bring clarity to these goals and help them come to fruition are valuable to investors.”
Keeping clients on track isn’t as investment-oriented as it sounds. It’s actually a behavioral coaching concept. It can be as simple as helping clients keep a long-term perspective when markets turn sour. Point is many clients realize their own limitations when it comes to portfolio construction. That’s why their clients and while “coaching” may not be the ideal term, they want that service. Of course, the bottom is line important, too.
“Though returns are often in the spotlight, we found only one study in which investors saw maximizing returns as a top value-add of advisors. Given the hidden nature of much of an advisor’s job, it’s not too surprising some investors may value something visible and measurable like returns,” adds Labotka.
Prioritizing the Quartet
The aforementioned quartet of client motivations for sticking with an advisor don’t carry equal weight. A case can be made that showing the ability to provide bespoke service and delivering on that promise and consistency take precedence.
Establishing and reaching goals is next up because it gives the advisor an avenue to “humble brag” because when a goal is reached, client satisfaction increases. As for returns and related expectations, much of that relies on messaging.
“Some clients will inevitably see returns as a key value-add for advisors, so advisors must be prepared to help clients think about returns productively,” concludes Labotka. “One way to do so is to help clients set better expectations for returns by giving them a meaningful benchmark. For example, advisors may focus clients on benchmarks that track toward their goals instead of beating the market more generally. In doing so, advisors speak to the value that clients see in returns without catering to unrealistic expectations for maximum returns.”